Change needed on employee share schemes
The Institute of Public Accountants (IPA) has called on the Federal Government to change the tax arrangements around employee share schemes (ESS) claiming the current regime is building an unattractive and non-competitive environment.
IPA chief executive Andrew Conway said the existing rules, introduced in 2009, effectively treat employee share options as income which is taxed at the employee's marginal tax rate.
"One of the most effective strategies for a cash-strapped entrepreneurial start-up business needing to attract talented staff is to offer an employee share schemes," Conway said.
"Without the cash flow to offer a competitive wage, an equity stake is the best option to attract and incentivise employees but the current rules make this strategy null and void," he said. "This puts start-ups at a huge disadvantage compared with more supportive regulatory environments in other countries. Consequently, we read too often of innovative, entrepreneurial businesses setting up shop overseas.
"Asking employees to pay tax on blue sky which may never be realised considering the high failure rate of start-ups is like paying tax on a tattslotto ticket before it is drawn and without the winnings," Conway said. "The IPA recommends the review of the taxing points at which share options are taxed, particularly for small business start-ups.
"Securities provided by companies that meet certain eligibility criteria should have the option of deferring the ESS taxing point to when securities have been realised and are able to be traded. By deferring the taxing point it avoids the need to value the shares when they are granted and also provides the employees with the funds required to pay the resulting tax on any discount given."
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